Analytics

Tuesday, May 29, 2012

Consumers Getting Savvier About Credit Scores

Consumers are getting savvier about credit scores, according to new findings from the nonprofit group Consumer Federation of America.

The federation and VantageScore, creator of a score that competes with the FICO score, contracted with ORC International to administer a quiz to more than 1,000 adults by phone in late April. The margin of sampling error is three percentage points. (The quiz is available on the federation’s Web site.)

The VantageScore, like the FICO score, is a three-digit number, but uses a range of 501 to 990.

Forty-two percent of those who participated in the survey said they had obtained at least one credit score in the past year, either from a lender or from a Web site using credit reports from the three main credit bureaus.

On almost all the questions, those who had recently obtained a score were more likely to know the right answers.

Consumers were more knowledgeable than they were when answering similar questions in January 2011, the federation found, and a “large majority” of consumers now know important facts about credit scores, including these:

• In addition to mortgage lenders and credit card issuers, landlords also use credit scores (73 percent of respondents knew this), as do home insurers (71 percent) and cellphone companies (66 percent).

• Consumers have more than one generic credit score (78 percent had this correct).

Somewhat surprising, the survey found, was that most consumers understand new, somewhat complicated rules about credit-score disclosures. When asked under what conditions lenders must inform borrowers of their credit scores, for instance, “large majorities” correctly identified three key conditions, including: after a consumer applies for a mortgage; whenever a consumer is turned down for a loan; and on all consumer loans, when the applicant does not get the best terms, including the lowest interest rate available.

Misunderstandings still remain, however. More than half, for instance, thought a person’s age and marital status were factors in calculating credit scores.

And few know how costly low scores can be. Only 29 percent were aware that on a $20,000, 60-month auto loan, a borrower with a low score is likely to pay at least $5,000 more than one with a high score.